Congress Rallies for Short-Term Highway Trust Fund Patch

Congress passed a bill (HR 5021) to provide a short-term funding patch for the Highway Trust Fund (“HTF”), just one day before the United States Department of Transportation was scheduled to begin slowing reimbursements to states for eligible highway, bridge, and mass transit projects.  A failure to act by Congress had the potential to slow-down or stop any number of transportation construction projects across the country in the midst of the construction season.

After volleying the bill back and forth between the chambers over the course of this week, Congress passed a final bill that adopts the House of Representative’s original language, allowing existing surface transportation programs to continue through May 2015 and topping up the HTF with transfers from the General Fund equaling $9.8 billion and $1 billion from the Leaking Underground Storage Tank fund (for a total patch of $10.8 billion).  The General Fund transfer will be offset using pension smoothing and customs user fees over the 2014 to 2024 period.  Congress acted as its members counted down the hours to a five-week recess.

The passage of HR 5021 averts delays in payments from the HTF, delays that were the subject of multiple warnings from Secretary of Transportation Anthony Foxx.  The crisis drew so near that Secretary Foxx released cash management procedures to state departments of transportation in early July 2014.

It is anticipated that President Barack Obama will sign HR 5021 into law.

This short-term funding fix to the HTF is only the first transportation hurdle facing Congress.  In addition, the most recent surface transportation authorization bill (Moving Ahead for Progress in the 21st Century) expires on October 1, 2014.  Congress must act to pass a new surface transportation authorization or an extension of MAP-21 in order to extend surface transportation policy beyond that date.  Additionally, Congress will need to address the federal transportation funding mechanism (which has primarily been the federal gas tax, last raised in 1993), which currently does not raise enough revenue to cover the backlog of transportation projects.

Update from the American Public Transportation Association 2014 Rail Conference

The American Public Transportation Association (“APTA”) held its Rail Conference on June 15 through 18, 2014, in Montréal, QC.  In addition to the technical sessions for which APTA is well-known, a main theme of the Rail Conference was the nexus between transit and economic development.  The shift in themes demonstrates transit organizations’ changing philosophy from building and operating transit infrastructure to also catalyzing transit-oriented communities.  Much of the focus on transit and economic development relates to joint development and Transit-Oriented Development (“TOD”).

The on-going discussion tying transit infrastructure to land use and development started at APTA’s committee and subcommittee meetings before the Rail Conference.  For example, the APTA Land Use and Economic Development Subcommittee (under the Planning and Policy Committee) has focused on this relationship between transit and shaping communities since its inception.  The agenda of the subcommittee at the Rail Conference included updates on the (1) Federal Transit Administration’s (“FTA”) new Joint Development Circular, (2) the FTA’s TOD Planning Pilot Notice of Funding Availability (“NOFA”), and (3) tools that are to be developed by APTA, such as developer procurement documents.

The FTA first provided notice requesting comment on its draft Joint Development Circular in early March 2013.  Since then, the FTA has reviewed comments and participated in a variety of listening and technical sessions related to joint development and TOD.  The transit industry has eagerly anticipated this updated circular, and the FTA indicated in the Land Use and Economic Development Subcommittee meeting that the circular will be available in the next couple of weeks.

Additionally, at the Land Use and Economic Development Subcommittee meeting the FTA announced the status of the TOD Planning Pilot.  Under the current surface transportation authorization (Moving Ahead for Progress in the 21st Century, or “MAP-21”), the planning pilot was authorized to provide funding to advance planning efforts that support TOD associated with new fixed-guideway and core capacity improvement projects.   Congress appropriated $10 million to the TOD Planning Pilot in both Fiscal Years 2013 and 2014.  The FTA anticipates providing a NOFA for the $20 million (total) planning pilot before the end of June.

Finally, the Land Use and Economic Development Subcommittee discussed the suggestion that APTA create tools related to joint development and TOD that can be used by members.  The first tool that is anticipated is a template Request for Qualifications for developers.  The template RFQ would provide some standardization of qualifications solicitation documents across the transit industry.  APTA has provided similar tools in the area of rolling stock procurement (buses and rail vehicles).

The thread that started at the committee and subcommittee meetings preceding the Rail Conference was picked up with sessions at the conference.  Slightly more than 20% of the sessions at the Rail Conference focused on the relationship between transit and land use and development.  Issues covered at sessions included streetcars and urban circulators and their relationship to development, value capture of development along transit infrastructure, innovative business models and Public-Private Partnership opportunities in transit, and prioritizing transit infrastructure through stakeholder input and land use planning.  A significant volume of information related to these topics, as well as technical topics addressed during Rail Conference sessions, is available through the Transit Cooperative Research Program.

Senate EPW Committee Unveils Surface Transportation Reauthorization Bill

Posted by guest blogger William Moore.

William Moore of Vianovo works with the Transportation Transformation Group, a consortia of public and private entities that looks at ways of improving the funding and financing of the nation's transportation infrastructure, which is co-chaired by Nossaman Partner Geoffrey Yarema.

The bipartisan leadership of the Senate Environment and Public Works Committee unveiled a six-year surface transportation bill last night that would maintain current funding under MAP-21 legislation expiring in September, plus inflation. Every state would see a boost in federal funds from what it currently receives, and the measure also increases public disclosures about how money is spent.  A committee summary and bill language is linked here.

The bill is scheduled for a markup Thursday.

The bill (S. 2322) would maintain TIFIA loans at current levels, while expanding the program to help states with infrastructure banks.  It revises current law governing Master Credit Agreements.

The bill would authorize spending $38.4 billion on the Highway Trust Fund’s federal aid highways portion for fiscal 2015. It would then increase with inflation to $39.2 billion in 2016, $40 billion in 2017, $40.8 billion in 2018, $41.7 billion in 2019 and $42.6 billion in 2020. It would authorize $400 million a year for Projects of National and Regional Significance program, seemingly as a substitute for the TIGER grant program, and would add a program authorized to spend $125 million a year for projects that show special innovation or would be completed ahead of time and below budget.

The bill would adjust minimum project cost categorical exclusions for inflation.  It would establish additional procedures to expedite environment reviews. 

A new freight program would be authorized at $400 million as of fiscal 2016, growing by $400 million a year to reach $2 billion in 2020.

The bill directs USDOT to study three or more sustainable funding alternatives, partner with states to conduct field trials and establish an advisory council to assist with the evaluation of funding mechanisms.  Alternative funding could include a fee based on the number of miles driven.

The bill does not detail tax provisions, such as increasing the PAB cap, that are under the Senate Finance Committee’s jurisdiction.  The bill is likely to require over $125 billion over six years to supplement motor fuels taxes and other excise taxes collected for the Highway Trust Fund.  Likewise, the bill includes no language on tolling.

Disclaimer: The views and opinions expressed in this post are those of the author and do not necessarily reflect those of Nossaman LLP.
 

President Obama Delivers Transportation Authorization "GROW AMERICA" Act to Congress

On April 29, 2014, President Obama delivered a draft of "Generating Renewal, Opportunity, and Work with Accelerated Mobility, Efficiency, and Rebuilding of Infrastructure and Communities throughout America" or "GROW AMERICA" Act to Congress, promised as his administration’s proposed multi-year surface transportation reauthorization.  This is the first surface transportation authorization proposal to be released, and the House and Senate proposals are likely to be more conservative.

The GROW AMERICA Act proposes to replenish the shortfall in the Highway Trust Fund (replacing it with a new “Transportation Trust Fund”), additionally budgeting and accumulating an additional $87 billion for transportation priorities.  Marquee infrastructure provisions include:

  • Providing funding certainty to state and local projects, promising $302 billion over 4 years (a 37% increase over the MAP-21 reauthorization.
  • Prioritizing public transit in urban and rural settings, increasing by 70% appropriations for transit funding
  • Targeting investment in freight rail infrastructure, proposing $10 billion over 4 years for transportation projects that improve freight transportation
  • Improving environmental and other permitting in infrastructure projects (e.g., concurrent permitting review, streamlining permitting processes, etc.)
  • Solving the “backlog of deficient bridges and aging transit systems” through $92.1 billion over 4 years to fund a “National Highway Performance Program” to “repair and reduce” congestion on the federal highway system and $13.4 billion through a “Critical Immediate Investments Program,” half of which is to cure pavement condition deficiencies and at least of quarter of which is to improve bridge structural deficiencies.
  • Eliminating the prohibition on tolling existing interstate highways, subject to the Secretary of Transportation’s approval.  Other tolling and toll-related provisions, effectively amending or repealing past transportation authorizations are proposed, described in further detail here in this blog.

The GROW AMERICA Act also proposes to “expand and improve” financing mechanisms to increase federal funding for “game-changing” projects, continuing and furthering discretionary grant programs and loan programs.  Specifically, the Transportation Infrastructure Finance and Innovation Act (TIFIA) program will provide $4 billion over four years to support $40 billion in TIFIA loans.  The U.S. Department of Transportation (USDOT) would also set aside $5 million per year from program funding to replace fees typically collected from TIFIA borrowers for project development costs, assisting as many as 10 small projects valued at less than $75 million.  Also, the Railroad Rehabilitation and Improvement Financing (RRIF) Program will reduce loan costs, ostensibly making RRIF loans more accessible.  Further, the cap on private activity bonds (PABs) will be raised from $15 billion to $19 billion; PABs are a means by which private development entities can partner with public entities to issue tax exempt bonds for highway/transit projects, further fostering private sector transportation infrastructure development by putting them “on a level playing field with public sector developers” in the space.

The Transportation Investment Generating Economic Recovery (TIGER) grant program will be given $5 billion over 4 years, and a new 4-year, $4 billion competitive grant program, Fixing and Accelerating Surface Transportation (FAST) will be available to states, tribes, and metropolitan planning organizations (MPOs) using “innovative strategies” that would have “long-term impact” on their transportation programs, including use for a program of surface transportation projects.  Metropolitan planning organizations will be given control of larger portions of funds (up to 8%) under FAST, to incentivize “high performing” MPOs, in their coordination with other MPOs, to have greater say in where to employ federal funding.

The GROW AMERICA Act is proposed to be funded from business tax reform, the details of which are expected at a later date.

Ann-Therese Schmid co-authored this entry.

Obama Administration Introduces Significant Changes to Federal Tolling Law

In our prior posts we noted the important changes in federal tolling law under MAP-21 and some of the issues raised by those changes.  MAP-21 modestly loosened the federal reins on tolling the nation’s Interstates and federal-aid highways.  The Obama Administration just released its federal surface transportation reauthorization legislation, the “Grow America Act”.  In section 1405, the Administration proposes further constructive steps to expand tolling rights, but reintroduces some constraints that MAP-21 relaxed.

Probably the most important proposal is to create the right to toll an Interstate facility in connection with its reconstruction.  Today this is permitted only for a maximum of three projects nationwide under the Interstate Reconstruction Pilot Program.  Section 1405 would replace the pilot program with a statutory tolling right for Interstate reconstruction, without any limit on the number of eligible projects.  The significance of this proposal cannot be overstated.  It proposes that previously free, general purpose lanes could be tolled in order to fund Interstate reconstruction.  Except for the small pilot program, this has been forbidden since the inception of the Interstate system 60 years ago.

Just as important is a proposal to allow conversion of any portion, or even all, of a toll-free facility, including the Interstates, to a tolled facility in order to promote congestion management.  No HOVs could be tolled.  The tolling regime would have to consist of variable tolling to manage demand.  The method of variable tolling appears to be flexible enough to allow either time-of-day pricing or dynamic pricing.  This proposal can be explained by the Administration’s environmental priority of reducing carbon emissions and achieving air quality attainment.  This provision, too, would be a groundbreaking departure from the historic ban against tolling free, general purpose lanes.

Section 1405 proposes to expand the purposes for which toll revenues may be used.  It would authorize use for public transportation that is within the corridor of the tolled facility or contributes to improved facility operation.  It also would allow tolls to be used to mitigate adverse impacts of tolling, such as the impacts of traffic diversion.  These provisions likewise are informed by the Administration’s environment priorities and promotion of public transit.

Section 1405 would require that all toll facilities first opened to traffic after October 1, 2015 use only non-cash electronic tolling technology to allow free flow of traffic.  This is consistent with the clear trend national toward all-electronic tolling and interoperability.

The quid pro quos are the reintroduction of federal regulatory controls and elimination of several MAP-21 tolling rights:

  • MAP-21 dropped most requirements for USDOT approvals and tolling agreements.  Section 1405 would re-impose USDOT approval rights for tolling in connection with Interstate reconstruction and for conversions of toll-free facilities to managed lanes, and give the USDOT broad authority to issue regulations on what criteria must be met.  The Administration apparently shrinks from letting states decide on their own whether to pursue such tolling arrangements.
  • MAP-21 on its face seems to authorize conversion of HOV lanes to tolled lanes without conditions.  FHWA, however, has interpreted this provision to require that, among other things, HOV vehicles continue to have toll-free use of the converted lanes.  Section 1405 would eliminate any ambiguity by mandating toll-free HOV use.  The only remaining way to toll HOVs in converted lanes would be through the Value Pricing Pilot Program, if a state happens to hold one of the VPPP slots and can get the USDOT to approve HOV tolling.
  • MAP-21 created the right to toll in connection with restoration or rehabilitation of an Interstate highway.  Section 1405 would eliminate this right.  No doubt USDOT criteria for Interstate reconstruction would distinguish between reconstruction, on the one hand, and restoration and rehabilitation, on the other hand.
  • The MAP-21 right to vary toll rates by type of vehicle, and to exempt vehicles from tolls, would be eliminated.  It is unclear whether the intent is to require uniformity of toll rates (for other than managed lanes).  Toll rate uniformity would pose very serious feasibility and political issues for tolling authorities.

We and others have advocated for wholesale removal of federal restrictions on tolling, except for restrictions on permissible uses of toll revenues.  On the whole, Section 1405 of the Grow America Act is a good step in the right direction, particularly because it seeks to address the looming problem of how to pay the massive amounts that will be needed to reconstruct the nation’s Interstates.

President Obama Announces a Proposal to Fund a Four Year Surface Transportation Bill at $302 Billion

On February 26, President Obama announced a proposal to fund a four year surface transportation bill that would increase spending by 22% for highways and 70% for transit over current levels.  The White House provided a Fact Sheet that outlines to proposal.   The current law, the Moving Ahead for Progress in the 21st Century Act (MAP-21) expires at the end of September.  That means that a new bill or an extension must be agreed to by both Houses of Congress by that time.  The President's envisions a $302 billion four year bill that builds on the substantive provisions of MAP-21.  More specifically, 

  • Administration envisions finding an additional $150 billion for a one time infusion into the Highway Trust Fund through various tax reforms.  This would cure the current shortfall and provide for an additional $90 billion dollars over current trust fund revenues, allowing for the four year $302 billion dollar bill.  
  • The plan highlights a “Fix-it-First” approach to encourage greater emphasis on repairing existing transportation facilities. 
  • The proposal would provide $206 billion for highway projects, $72 billion for transit, $19 billion for rail, and $10 billion for a multimodal freight grant program. 
  • The program would continue the TIFIA program at the current level of $1 billion per year. 
  • Also envisioned are new provisions to enhance program efficiency, improving project delivery and expediting the regulatory review process. 
  • The program would continue current themes of focusing on transportation design to support more resilient communities.  
AASHTO welcomed the announcement, particularly because of the additional funding it would provide for transportation funding and for addressing the growing shortfall in the Federal Highway Trust Fund.  Chairman Shuster of the House Transportation and Infrastructure Committee was encouraged by the President's proposal, noting that Chairman Camp of the House Ways and Means Committee also proposed funding transportation through $125 billion in tax reforms.  
 
The White House Fact Sheet was not clear as to whether the Administration plans to send a bill to Congress.  It also said nothing about additional funding for high speed raid projects.  Finally, the statement made no mention of long term fixes for highway trust fund, such as additional or alternative users fees, beyond the life of the four year proposal.
 
The White House also announced a new $600 million for TIGER grants from the Consolidated Appropriation Act, signed by the President on January 17, 2014.  It is clear that the Administration would like to continue TIGER grants for the foreseeable future.
 

FHWA and FTA Issue New Guidance On MAP-21 Exclusions

By Ben Rubin and originally posted on the California Eminent Domain Report blog.

On July 6, 2012 President Obama signed into law MAP-21, which, among other things, contained new National Environmental Policy Act ("NEPA") requirements for the Federal Transit Administration ("FTA") and Federal Highway Administration ("FHWA").  In January 2014, pursuant to a mandate in MAP-21, FTA and FHWA adopted new regulations, which became effective this week on February 12, governing the implementation of two new categorical exclusions. The two new categorical exclusions apply to (1) projects within an existing right-of-way, and (2) projects receiving limited Federal funding. 

The benefit of qualifying for one of these two new categorical exclusions is that the FTA and FHWA will not require the preparation of an environmental assessment or environmental impact statement, both of which often require a great deal of time and money. Of particular note, the regulations state that the categorical exclusion for projects within an existing right-of-way does not apply to "construction of a project in an undeveloped area simply because the real property interests were previously acquired," because the "use of the modifier 'existing' to describe the operational right-of-way means that a transportation facility must already exist at the location where the proposed project will be built." The regulations detail a number of other important nuances and caveats, so be sure to consult the regulations (or better yet, your NEPA expert) before you assume that a project qualifies for one of these new categorical exclusions.

Tolling for the Next Generation Interstate System

We are now a short distance away from expiration of MAP-21, with no solution in sight for sources of funding to sustain the federal highway program.  There is no stomach in Congress to increase federal gas taxes or to make real progress toward replacing gas taxes with mileage-based user fees.

As for tolls, Rep. Bill Shuster, Chair of the House Transportation and Infrastructure Committee, said in a speech last week that they “might be even more difficult to do than some of the user fees."  Tolling of interstates that have been free for decades would not be kindly received by voters, according to Rep. Shuster.

This is the same political mentality that drove decisions on expansion of federal tolling authority under MAP-21.  MAP-21 created new authority to introduce tolling to fund construction of new interstate capacity and interstate reconstruction, but in both situations MAP-21 prohibits any net reduction in the number of toll-free, non-HOV lanes.  This means that, with the except of potentially converting existing HOV lanes to HOT lanes, only new lanes may be tolled in connection with interstate reconstruction or expansion. 

With this restriction, the toll revenues that can be generated from the MAP-21 tolling provision pale in comparison to the costs to reconstruct and expand the interstate system.

Bold and broad thinking on the future of the interstate system will have to well up from industry leaders and state government if there is ever to be a change in the current federal ban against tolling existing capacity of the interstates.  Bob Poole of the Reason Foundation just published a year-long study on the feasibility of interstate tolling to pay for the estimated cost to reconstruct and expand the interstate system.  The Reason study is an audacious and timely exercise that just might frame the national debate on the subject, for several key reasons:

  • It finds that the job can be accomplished at feasible toll rates – 3.5 cents/mile for cars and 14 cents/mile for trucks, on average.
  • It includes a state-by-state analysis, concluding that almost every state is capable of funding its next generation of the interstate system via tolling.
  • It is based on the premise that tolls are not introduced until value is added – i.e., until an interstate corridor is reconstructed and modernized so that it will operate at a higher level of service.
  • It proposes that the use of the toll revenues be restricted to the purpose of interstate reconstruction and expansion.
  • Modern, all-electronic tolling is assumed.
  • It would represent a significant transitional step toward a universal mileage-based user fee system, as the interstates account for 25% of total vehicle miles traveled.
  • It encompasses funding of on-going interstate maintenance as well as future improvements.
  • It even proposes to rebate fuel taxes for vehicle miles traveled on tolled interstate corridors, to avoid any claim of “double taxation.”

Tolling of the interstates under the terms enunciated in the Reason study recognizes that major portions of the interstate system are close to the end of their original design life and that modernization, rehabilitation, replacement and expansion make up the next generation of the interstate system.  It is true that federal and state fuel taxes paid for the bulk of our current, aging and capacity-constrained interstate system and so, with a few exceptions, was never intended to be tolled.  It is equally true, however, that Congressional abhorrence of higher fuel taxes and mileage-based user fees assures us that the future federal transportation program will fail to pay for the next generation interstate system.

Eliminating the federal ban on tolling interstate capacity can be viewed politically as an act of federalism rather than Congressional endorsement of interstate tolling.  In reality, it would mean that the federal government is neutral regarding the matter.  It would neither bar nor mandate interstate tolling.  It would mean that each state would make its own political decision on whether, when and on what terms to implement interstate tolling.

Political pressure from state governors, state legislators and state DOT executives will be essential to drive any action by Congress to lift the federal tolling restriction.  As Ken Orski writes in his latest cogent brief on this subject, “[t]heir collective judgment will be decisive in whether Congress votes in favor of lifting the current legislative restriction against Interstate tolling or leaves it in place.”  (NewsBrief, Vol. 24, No. 14, September 18, 2013, www.innobriefs.com)

TIFIA Program Office Releases Updated Program Guidance and Templates

In other TIFIA news . . .  

Yesterday, the TIFIA Program Office released updated TIFIA program guidance and loan document templates that purport to reflect the July 6, 2012 enactment of MAP-21.  Among other revisions, the TIFIA Program Guide has been updated to reflect MAP-21’s endorsement of a rolling application process and the imposition of specific statutory deadlines on processing applications.

While the updated TIFIA guidance documents offer welcome support to current and prospective TIFIA applicants, there appears to be at least some additional work to be done to update the materials to properly reflect MAP-21 enhancements.  For example, the updated TIFIA Loan Term Sheet and TIFIA Loan Agreement sample templates continue to reflect a maximum 33% loan amount ceiling - a limit that Congress raised in MAP-21 in order to authorize TIFIA loan amounts of up to 49% of eligible project costs.

The updated Program Guide and templates can be found on the TIFIA website.

The TIFIA Letter of Interest and Application forms remain open for review and public comment until August 5, 2013.

TIFIA Joint Program Office to Move?

In addition to taking testimony from public agency project sponsors and industry leaders during the July 24, 2013 oversight hearing on TIFIA conducted by the Senate Committee on Environment and Public Works, the Committee heard from the Secretary of Transportation, Anthony Foxx, regarding the U.S. Department of Transportation’s (“USDOT”) implementation of the TIFIA Program since the July 6, 2012 enactment of MAP-21. 

While touting the overall success of the TIFIA program and detailing USDOT’s efforts to move projects through the TIFIA pipeline, Secretary Foxx also announced preliminary plans to move the TIFIA Joint Program Office from its current home under the Federal Highway Administration to the Office of the Secretary.  Citing a need to create a “more streamlined management approach” to address increasingly large and complex loan requests, Secretary Foxx indicated his belief that such a move would allow for more effective implementation of the TIFIA program.  It remains to be seen whether this change will occur and, if it does, whether it will expedite the TIFIA process and approval time.

Click here for Secretary Foxx’s full testimony.
 

Senate Committee on Environment and Public Works Holds Oversight Hearing on TIFIA, Nossaman Partner Testifies

Showing concern for the TIFIA JPO’s slow pace of credit approvals for major US transportation, on July 24, 2013, the Senate Committee on Environment and Public Works conducted an oversight hearing on the implementation of the TIFIA Program following MAP 21’s expansion of the program almost a year ago.  We are aware of only one project that has received credit approval in that time frame.

Geoff Yarema, a partner in the Infrastructure Practice Group and a member of the National Surface Transportation Infrastructure Financing Commission, provided testimony today at the hearing.

In his testimony, Geoff pointed to the importance of the TIFIA program in supporting large scale infrastructure projects by allowing applicants to leverage fewer federal dollars to maximize local, state and private funds.  The passage of MAP-21, he said has greatly enhanced the availability of TIFIA loans from approximately $122 million a year to $750 million in FY 2013 and $1 billion in FY 2014.  States and regional governments have been increasingly looking to the TIFIA program as a key component of their transportation funding and financing plans.  

However, Geoff noted that the U.S. Department of Transportation (“USDOT”) faces certain challenges that need to be resolved to accelerate TIFIA’s approval process: (a) streamlining the pre-application process, (b) enhancing bidding competition with earlier TIFIA commitments to public sponsors, (c) accelerating financial closing, (d) preserving TIFIA’s value proposition to maintain flexible loan terms, (e) enhancing transparency, (f) processing higher quality credits more quickly and efficiently, and (g) implementing the authorization of loans up to 49% of eligible project costs, as approved by MAP-21.

James Bass, CFO of the Texas Department of Transportation, D.J. Gribbin of Macquarie Capital, Arthur Leahy, CEO of Los Angeles County Metropolitan Transportation Authority and James Roberts, President and CEO of Granite Construction Incorporated also provided their testimony to the committee.

Click here for Geoff's full testimony or click here to watch video of the full Committee hearing.

Update: Geoff Yarema provided supplemental testimony to the Committee in response to follow-up questions posed by Senators Boxer and Vitter.

FHWA's Expanded Application of Buy America to Utility Relocations Causes Consternation, Delays

As we have previously reported, the Federal Highway Administration (FHWA) has issued guidance holding that "Buy America applies to any utility work that is accomplished as a result of a Federal-aid highway project", unless the utility work cannot legally be reimbursed by the State.  This conclusion is based on an amendment to Buy America found in Section 1518 of MAP-21, which requires the application of Buy America to all contracts eligible for assistance within the scope of a project (as defined by the NEPA document), if at least one contract for the project is funded with Federal-aid highway funds.  The rule applies even if no federal funds are used to reimburse the utility work.

The relatively sudden application of Buy America to utility work that was not previously subject to its requirements has had serious consequences.  Utilities in many states are refusing to sign agreements that incorporate the Buy America requirements, which threatens to delay and increase costs for many projects.  Reasons advanced for this refusal vary, but many appear to be based on practical concerns; for example, a utility states that it does not have any experience in complying with Buy America, its current procurement processes do not yield the information necessary to confirm compliance, or it is not certain that it will be able to procure quality Buy America-compliant materials.

For a project sponsor, the consequences of noncompliance with Buy America could be dire.  According to FHWA (as stated on FHWA's MAP-21 website), failure to incorporate Buy America provisions where required ". . . would render all contracts within the scope of the NEPA document ineligible for Federal-aid highway funds." 

State DOTs, other project sponsors and related groups have expressed the need for guidance and practical assistance from FHWA in the application of this new law.  For example, in a February 12, 2013 letter to outgoing Transportation Secretary Ray LaHood, the American Public Works Association (APWA) and the National Association of County Engineers (NACE) requested guidance and future rule making to the effect that "Buy America requirements are not applied to contracts or work under an agreement with a utility that is not funded by title 23 programs".  Others have suggested a grace period for implementation of the new rules.  Discussion at a recent meeting of the AASHTO Subcommittee on Right of Way, Utilities, and Outdoor Advertising Control found that notwithstanding the guidance posted on FHWA's website, so far the new rules are not being interpreted or applied uniformly throughout the country. 

We understand that FHWA anticipates issuing a Notice of Proposed Rule Making for regulations dealing with these Buy America compliance issues sometime in 2013.  We urge FHWA to act quickly in developing its proposed regulations, and to pursue whatever other measures are necessary to resolve this impasse as soon as possible.
 

FHWA and FTA Issue Guidance on MAP-21 to Streamline Environmental Process

On January 14, 2013, the Federal Highway Administration (FHWA) and Federal Transit Administration (FTA) issued guidance on Section 1319 of the Moving Ahead for Progress in the 21st Century Act (MAP-21), Pub. L. 112-141, July 6, 2012.  MAP-21 is a measure that reauthorizes transportation funding through the end of 2014, and is the product of a robust effort by transportation advocates to streamline the lengthy, complex, and cumbersome federal environmental process.  As we reported here, MAP-21 includes several meaningful reforms that could expedite the National Environmental Policy Act (NEPA) process, thereby accelerating project delivery. 

Section 1319 attempts to expedite project delivery by providing a process by which agencies will begin to consolidate their NEPA documents.  Specifically, Section 1319 authorizes (1) the use of errata sheets attached to a draft EIS (DEIS) in lieu of the traditional final EIS (FEIS), and (2) the use of a combined FEIS and Record of Decision (ROD).  While the guidance provides details for transportation agencies regarding how to prepare and process these consolidated documents, it indicates that these devices are not likely to be applicable to controversial projects or where there are unresolved inter-agency disagreements. 

Use of Errata Sheets in Lieu of FEIS.  Pursuant to Section 1319(a), agencies may attach errata sheets to a draft EIS, in lieu of preparing a traditional FEIS.  The guidance indicates that errata sheets should only be used if the lead agency has modified the DEIS “in response to comments that are minor and are confined to factual corrections or explanations of why the comments do not warrant additional agency response.”  The errata sheets should also include the information required in a FEIS, as set forth in applicable regulations. 

Use of a Combined FEIS and ROD.  Section 1319(b) directs agencies to prepare a combined FEIS and ROD “to the maximum extent practicable.”  The guidance indicates that a combined FEIS/ROD should not be prepared if the FEIS makes substantial changes to the proposed action that are relevant to environmental or safety concerns, or there are significant new circumstances or information relevant to environmental concerns that impact the proposed action.  The guidance includes factors that an agency should consider when deciding whether a joint FEIS/ROD is appropriate, including whether the proposed action involves a substantial degree of controversy or whether there are unresolved inter-agency disagreements regarding the proposed action.  Any combined FEIS/ROD should also meet the requirements of applicable regulations. 

Prior to MAP-21, NEPA regulations prohibited agencies from approving a ROD any sooner than 30 days after the notice of availability of an FEIS.  Combining these processes, as well as encouraging the use of errata sheets to prepare an FEIS, may streamline and expedite the environmental review process for some projects.  The guidance suggests, however, that the use of these streamlining devices may not be appropriate for controversial projects or where there are unresolved inter-agency disagreements. 

The Section 1319 guidance was issued on an interim basis.  At a later date, FHWA and FTA will conduct a formal rulemaking to propose revisions to the FHWA/FTA NEPA regulations (23 C.F.R. Part 771) to reflect the changes made as a result of MAP-21.

FHWA Clarifies Broad Reach of Buy America Requirements

The Federal Highway Administration (FHWA) released two guidance memoranda in December 2012 relating to Buy America, largely in light of the amendments made by MAP-21.  On December 20, FHWA clarified the Buy America requirements applicable to utility work on Federal-aid projects.  The December 21 memorandum provided additional amplification on FHWA’s position regarding Buy America requirements applicable to manufactured products.

FHWA’s December 20, 2012 Guidance

FHWA was in the process of evaluating the applicability of Buy America requirements to utility work on Federal-aid highway projects when President Obama signed the Moving Ahead for Progress in the 21st Century Act (MAP-21), Pub. L. 112-141, July 6, 2012.  Section 1518 of MAP-21, amending 23 U.S.C. §313, “substantially broadened” the application of Buy America requirements to any contract eligible for Federal highway funding “carried out within the scope of the applicable finding, determination, or decision under the National Environmental Policy Act [NEPA], regardless of the funding source of such contracts if at least one contract for the project is funded with Federal-aid highway funds.”  In a letter to the American Association of State Highway and Transportation Officials (AASHTO), FHWA concludes that, in light of the amendments to 23 U.S.C. §313, “the application of Buy America cannot be narrowed to exclude utility work, even if such utility work is not reimbursed with Federal-aid highway funds.”  The sole case in which Buy America requirements would not apply to utility work is if such utility work cannot legally be reimbursed by the State.

Under the federal-aid highway program, Buy America applies to iron and steel projects used in federal-aid highway project.  Such products must meet the requirements for being American made, unless their use increases the total project cost by at least 25%, suitable American made products are not reasonably available, or it is not in the public interest.  These determinations or waivers are made by FHWA upon application of the state department of transportation.  Exceptions to the Buy America requirement are closely reviewed and have become increasingly difficult to obtain. 

Prior to the enactment of MAP-21, Buy America only applied to contracts actually funded at least in part with federal-aid highway funds.  Since it is typical that the project described in a NEPA document might be constructed with funds from a variety of sources, this substantially expanded the reach of Buy America provisions.  This is particularly true of utility relocation projects, which might be paid for with state funds or even by the utility by itself.  If such work is eligible for federal assistance, whether or not federal funds are used, Buy America applies.

FHWA’s December 21, 2012 Memorandum

FHWA’s current Buy America policy is based on the statutory provisions in the Surface Transportation Assistance Act of 1982, as implemented with a November 25, 1983, final rule.  The 1983 final rule, along with a 1997 clarifying memo, conclude that Buy America does not apply to all manufactured products; Buy America applies only to components made predominately of steel or iron.  FHWA deems a product to be manufactured predominantly of steel or iron if the product consists of at least 90% steel or iron content when it is delivered to the job site for installation. 

While FHWA’s general policy in this regard has not changed, the primary purpose of the December 21 Memorandum is to explain the change in view of FHWA towards waivers of the Buy America requirements.  Upon passage of the American Recovery and Reinvestment Act in 2009 (ARRA), FHWA formed national review teams to analyze the use of ARRA funding and provide recommendations for improvements.  This analysis brought up some questions, such as, does the scope of the 1983 waiver apply to off-the-shelf products?  FHWA states its concern in the memorandum that a broad reading of the statute to include off-the-shelf products “is not cost-effective to administer.”  However, FHWA ultimately concludes that “the scope of the waiver was intended to encompass miscellaneous steel or iron components and subcomponents that are commonly available as off-the-shelf products such as faucets, door hardware, and light bulbs.” 

This reflects a decision by FHWA that even when purchasing or specifying off-the-shelf iron and steel products for use in projects funded with federal aid highway funds, the state or other grantee must require that such products be manufactured in the United States.  The more expansive reading of the statute is policy based and follows the enactment of MAP-21.  It reflects both the Obama Administration’s focus on strengthening Buy America requirements and the broadening of Buy America in the new statute.  Although the MAP-21 amendment does not address the types of products to which Buy America applies, it clearly reflects a desire by Congress to expand the reach of the statute. 

The December 21 Memorandum may be found at the FHWA website

Conclusion

What does this mean for transportation projects?  Previously contractors could get around the Buy America requirements by splitting up contracts into pieces that would or would not be reimbursed by federal funding depending on whether or not the work involved non-compliant materials.  This work-around is no longer available.  FHWA has made clear that a broader reading of the Buy America requirements will now be followed. 

For additional Buy America information please see the FHWA website.

Edward Kussy co-authored this entry.

FHWA Holds P3 Model Contract "Listening Sessions" and Beta-tests "P-3 VALUE Toolkit"

As part of its effort to meet MAP-21’s legislative requirement to develop “standard public-private partnership transaction model contracts for the most popular types of public-private partnerships,” the Federal Highway Administration held a “listening session” with representatives from the transportation industry at the U.S. Department of Transportation in Washington D.C. on January 16.  Representatives from state departments of transportation, general contractors, trade associations, legal advisors and others were in attendance, and solicited to provide FHWA with the P3 community’s view of what the model contracts should be. 

In her introductory remarks, the Hon. Beth Osborne, Deputy Assistant Secretary of Transportation for Policy, saw the effort as “compiling best practices” of the P3 community, but one for which FHWA did not have “pre-conceived notions.”  FHWA and USDOT representatives spent the better part of four hours hearing out the industry’s hopes for, expectations about and cautionary recommendations regarding FHWA’s final product.  The resounding theme of the audience comments was that “every P3 is different,” FHWA’s effort should tilt toward educating public sponsors as to the project-specific risk-sharing and “value-for-money” considerations that makes a P3 an effective delivery tool, and FHWA should refrain from prescribing risk allocations or other contract terms.

In a companion effort, FHWA is also beta-testing an interactive model, which intends both to help educate public sponsors in alternative procurement strategies (like the public-private partnership (“P3”)) “apples to apples” comparison with conventional procurements).  The “P3-VALUE Toolkit” collects project sponsors’ (and their consultants’) project-specific risks, quantifies their value, and, with other financing assumptions and project-specific parameters considered, produces a snapshot of the value-for-money that a P3 strategy may or may not present for that project.  FHWA held an initial roll-out “webinar” of the draft toolkit on January 10, with a follow-up webinar session on January 24.

FHWA has set up a docket, Federal Register No. FHWA-2012-0126, to collect industry comments by May 31, to keep pace with the rigorous requirement of MAP-21 to produce and promulgate model contracts by December 31, 2013.

Fred Kessler co-authored this entry.

ARTBA Announces Recipients of 2012 P3 Awards

On October 10 through 12, the American Road & Transportation Builders Association (ARTBA) held their 24th Annual Public-Private Partnerships in Transportation Conference in Washington, DC.  Each year during this conference, the ARTBA P3 Division honors two individuals, one public sector and one private sector, for their exemplary contributions to the transportation industry. 

This year we are proud to announce that Nossaman's Geoff Yarema was named "P3 Private Sector Entrepreneur of the Year."  Geoff is the first two-time recipient of this award, having received the award in 2003.  Geoff was recognized for his outstanding contributions to the advancement of P3s within the transportation construction industry, particularly for his involvement in the National Surface Transportation Infrastructure Financing Commission and the Moving Ahead for Progress in the 21st Century Act (MAP-21), a measure to reauthorize transportation funding through the end of 2014.

Also, Tony Kinn of Virginia’s Office of Transportation Public-Private Partnerships (OTP3) was named “P3 Public Sector Entrepreneur of the Year.”  Appointed as the director of OTP3 in 2011, Tony is in charge of one of the largest P3 transportation programs in the United States.  This year, he oversaw the financial closing of two major Virginia Department of Transportation (VDOT) P3 projects, including the Midtown Tunnel Project in April.  A Nossaman team, led by Simon Santiago, advised VDOT on the $2.1 billion Midtown Tunnel Project, which is comprised of a new two-lane tunnel adjacent to the existing Midtown Tunnel, the maintenance and safety improvements to the existing Midtown and Downtown Tunnels, and an extension of the MLK Freeway to Interstate 264.  Tony told the conference attendees that his goal is to have OTP3 and VDOT remain in the forefront of closing deals and we wish him continued success in this endeavor.   

In addition to the individual awards, each year ARTBA recognizes projects for the innovation that they brought to the process of public-private partnerships in the United States.  We would like to congratulate the California Department of Transportation and the San Francisco County Transportation Authority for the Presidio Parkway Project’s recognition as "P3 Project of the Year."  A Nossaman team, led by Barney Allison, advised Caltrans on the $1.1 billion deal, which will be the first transportation P3 in California under the recently enacted P3 statute, Streets and Highways Code section 143, and only the third highway project in the United States developed through an availability payment structure.  

Established in 1902, ARTBA is the oldest national transportation construction-related association.  Their primary goal is to aggressively grow and protect transportation infrastructure investment to meet the public and business demand for safe and efficient travel.
 

FHWA Issues Interim Guidance on P3 Assessments for Major Projects

The Federal Highway Administration (FHWA) recently issued guidance for implementing various aspects of the Moving Ahead for Progress in the 21st Century Act (MAP-21), including:  Infrastructure; Environment, Planning and Realty; Safety; Operations; and Innovative Program Delivery.  The guidance became effective October 1, 2012.

The interim guidance on Innovative Program Delivery includes provisions for implementing the new public-private partnership (P3) assessment requirement for Major Project Finance Plans under MAP-21.  The new P3 assessment requirement is, in our view, a welcome development that brings the U.S. closer to an approach that has been adopted with substantial success in Canada’s efficient and mature P3 market.

Interim Major Project Financial Plan Guidance – P3 Assessment

The interim guidance discusses two significant changes to the financial plan requirements for Major Projects arising from MAP-21:  (1) a financial plan may include a phasing plan in the event there are insufficient financial resources to complete the entire project; and (2) a financial plan must assess the appropriateness of a P3 to deliver the project. 

“Major Projects” means Federal-aid projects with estimated total costs of $500 million or more and other projects as may be identified by the Secretary (see 23 U.S.C. 106(h)(1)). 

FHWA will now approve a financial plan for a Major Project only if it includes an assessment of P3 appropriateness.  FHWA requires that all initial financial plans submitted on or after October 1, 2012 include such an assessment, regardless of whether a P3 is the anticipated project delivery method.  To this end, all cost estimate reviews conducted prior to the issuance of the NEPA decision document must include a component to analyze the allocation of risk in delivering the project via the P3 model.

The interim guidance provides that the P3 assessment is expected to be brief and should include:  documentation of the results of the risk allocation analysis; discussion of whether a P3 or traditional procurement could more effectively leverage the revenue stream for the project; a discussion of the current State statutory authority for P3s (including with respect to public sector debt capacity); and a concluding statement regarding appropriateness of a P3 to deliver the project.

Positive Development

The new P3 assessment requirement is a welcome development in the U.S. market, which trails more mature P3 markets such as Canada and the United Kingdom in effectively leveraging the P3 delivery model, despite our enormous infrastructure deficit.  The MAP-21 requirement for P3 assessment is an excellent first step in mainstreaming P3 as a project delivery alternative.  By requiring a preliminary P3 screen for major Federal-aid projects, it will hopefully help bring to market projects that would have either cost more (when taking into consideration lifecycle costs) or taken longer to complete, or would not have been undertaken using traditional procurement methods.

By way of comparison, jurisdictions within Canada have long applied mandatory P3 screens to potential infrastructure projects.  In British Columbia, one of the most active P3 jurisdictions within Canada, consideration of P3 suitability is mandatory for all projects having a minimum capital cost of $50 million.  At the federal level, the P3 screen is applied to projects of $100 million or more.  Municipalities, the newest front for P3s in Canada, are encouraged to undertake a P3 assessment early in the decision-making process to identify projects suitable for P3 development, and some have adopted formal P3 policies (e.g., City of Edmonton has a mandatory P3 screen for complex projects of CAD$30 million or more).  That P3 screens have been applied for years and are being expanded in application is a testament to Canadian faith in the P3 model.   Its use has contributed to the robust P3 pipeline and timely addressing of infrastructure needs in Canada, a large percentage of which could not be addressed in the absence of the P3 delivery model.
 
While a mandatory P3 assessment for major Federal-aid projects is not a panacea for addressing infrastructure needs in the U.S., it is arguably an important step in raising the collective awareness, consideration and appreciation of P3s at a national level, and should encourage more States and public authorities to examine P3 as a valuable project delivery alternative where appropriate. 

Further Guidance Needed

The interim guidance is relatively brief and does not contain guidance regarding details such as whether the TIFIA application/oversight, if applicable, would meet the Major Projects Financial Plan requirements.  FHWA is in the process of developing formal revisions to its guidance documents, which presumably will provide further clarity and information.

Fred Kessler co-authored this entry.

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USDOT Issues Guidance on MAP-21 Tolling Program

On September 24 the Federal Highway Administration issued policy guidance on various aspects of MAP-21, including a memorandum to its Division Administrators on the tolling provisions in MAP-21 and questions and answers on federal tolling laws.

The tolling guidance addresses (1) the “complete replacement” of the prior statutory language of 23 U.S.C. 129(a), (2) the application of the existing HOV/HOT lane provisions in 23 U.SC 166, and (3) the status of the four existing toll pilot programs.  It is a must-read for anyone concerned with federal tolling law and policy.

Sections 129 and 166

The guidance recognizes the important expansion of tolling rights under Section 129 to newly constructed lanes added to existing toll-free Interstate highways, and to initial construction of highways, bridges, and tunnels on the Interstate System.  These provisions mainstream the interstate construction and express lanes demonstration programs.  Inexplicably, it does not mention another important expansion of tolling rights – for reconstruction of existing Interstate facilities, provided the number of toll-free, non-HOV lanes is preserved.

Sections 129 and 166 have overlapping provisions addressing conversion of HOV lanes to tolled lanes.  New Section 129(a)(1)(H) authorizes conversions and is free of conditions or limitations on the tolling method and rates.  Standing alone, it allows tolling of HOV vehicles in what were formerly HOV lanes.  Existing Section 166(b)(4), on the other hand, allows non-HOV use of HOV lanes if the non-HOV vehicles – but not the HOV vehicles - are tolled under a demand management automatic tolling system.  So there is an issue under MAP-21 whether Section 129(a)(1)(H) is limited by Section 166(b)(4) and its lack of authority to toll HOV vehicles.

The FHWA guidance on this issue is creative, to say the least:

"MAP-21 makes the conversion of HOV lanes to toll facilities eligible under Section 129. However, since Section 129 does not provide specific authority allowing vehicles not meeting the occupancy limitation to operate on HOV lanes, such authority can only come from Section 166, and its provisions will thus apply to all conversions of HOV lanes to toll operations."

FHWA apparently takes the view that tolling agencies must continue to allow HOVs to have toll-free use of converted HOV lanes at all times of day.  It was not necessary for FHWA to reach this conclusion.  It was equally possible for it to conclude that Section 166 provides the authority for non-HOVs to use HOV lanes and pay a toll, and that Section 129 authorizes tolling of the HOVs.  In other words, it is reasonable to conclude that new Section 129(a)(1)(H) on its face allows a tolling agency to take an HOV lane out of circulation and make it a completely tolled facility.  While we question whether FHWA's interpretation is correct, we at least now have some more clarity on the issue.

The guidance also acknowledges that tolling agreements are no longer required under Sections 129 and 166.  Previously executed agreements will continue in effect.  FHWA will take no further action for those agreements in process but not yet signed.  In the same breath, however, FHWA is now recommending that tolling agencies use (the catchphrase is “may wish to enter into”) a form of “Memorandum of Understanding” regarding tolling of a project.  The form MOU, included in the guidance, looks conspicuously similar to a Section 129 agreement and would create a binding contract.  It remains to be seen whether FHWA division offices will leave use of the MOU to the discretion of tolling agencies or mandate their use despite clear Congressional intent to do away with tolling agreements.

Pilot Programs

MAP-21 left a lot of guesswork as to the status of the pilot programs.  The guidance and answers to questions do a good job of clarifying where the programs stand.

The Express Lanes Demonstration Program expires this September 30.  Agreements for five of the 15 slots have been executed and will remain in effect.  The projects for which slots were allocated but no agreement signed will receive no further processing under this pilot program but will be addressed under Section 129.

The Interstate System Construction Toll Pilot Program, while technically continuing until 2015, is effectively defunct.  Because new interstate system construction is now a statutory right under Section 129, FHWA will accept no further applications under this pilot program.

MAP-21 does not change the Interstate System Reconstruction and Rehabilitation Pilot Program.  This pilot program authorized only three slots, and all of them are currently reserved.  Tolling agreements are required under this pilot program.

The most important continuing pilot program is the Value Pricing Pilot Program.  It provides considerable flexibility in introducing congestion pricing mechanisms to existing interstates and highways.  For instance, the VPPP could be used to authorize a regional managed lanes program, or a cordon pricing program.  Of the 15 available slots, seven are permanently reserved under executed statewide tolling cooperative agreements; and the other eight are reserved to selected state agencies for studies or non-toll projects.  The eight slots will become available again once the studies are done.  The guidance indicates that FHWA will use the VPPP only for situations that are not authorized under the new Section 129.  Tolling agreements are required under this pilot program.

What’s Next

In the short term, expect to see increasing use of the expanded tolling authority under MAP-21, as state DOTs and local transportation agencies struggle to find new revenue sources to meet critical needs.  As Bob Poole notes, the number of managed lane projects is proliferating (Surface Transportation Newsletter #107).

In the long run, the combination of shrinking federal funding for transportation and continuation of federal restrictions on tolling is not sustainable.  Unless another robust revenue source is identified, tolling across all lanes of Interstates will be critical to finance the major Interstate reconstruction and rehabilitation that looms.  Federal law still prohibits such tolling.  There may be an opportunity to further expand federal tolling rights as part of the negotiation in Congress and with the Administration of the “Grand Fiscal Bargain” after the November elections.

In my view, there is no sound policy reason for federal law restrictions on what facilities may be tolled, at least in urbanized areas where the predominant traffic is local and regional.  Policy decisions on tolling are driven by state and local needs and local citizen input.  Local transportation bodies and the elected officials that appoint them are accountable to the voters directly affected by tolling policy decisions.  Where there is accountability, the decisions will reflect the balance of local interests and needs.  Federal law and policy should accommodate, rather than inhibit, those decisions.

Knik Arm Crossing Files $500 Million TIFIA Letter of Interest

Last night the Knik Arm Bridge and Toll Authority, responsible for development of the $750 million Knik Arm Crossing project in the Anchorage, Alaska region, filed a letter of interest with the USDOT for TIFIA credit assistance.  It is one of the first, if not the first, letters of interest filed under the USDOT’s July 27 Notice of Funding Availability implementing the MAP-21 amendments to TIFIA.

KABATA filed a letter of interest in November 2011 for a $308 million TIFIA loan.  With the changes in MAP-21 authorizing TIFIA credit assistance up to 49% of eligible project costs and expanding what are eligible costs, KABATA has increased its request to $500.5 million.

The Knik Arm Crossing is planned to be a toll project, delivered under an availability payment public-private partnership.  The plan is to use toll revenues, together with state appropriations, to fund a reserve for availability payments and other contract obligations.  Based on the transaction structure, KABATA expects that both the senior debt and the subordinate TIFIA debt will achieve investment grade rating, something the TIFIA law requires if the principal amount of the TIFIA debt exceeds the senior debt.

The toll revenues are slated to be used in part to help fund future capacity expansions of the project and planned regional transportation needs.  As the letter of interest points out, the 49% TIFIA financing will free up more toll revenues to meet these other transportation needs, and in this way effectively leverage much more than the initial project.

As far as we are aware, the Knik Arm Crossing is poised to be the first project to submit a letter of interest to USDOT under MAP-21’s new TIFIA provisions for rural projects.  The application indicates that 78% of the project, in terms of lane miles, and 57.6%, in terms of project costs, are in rural areas.  The new TIFIA law defines rural areas as those outside a city with 250,000 or more population.  Rural treatment for a portion of the project will lower interest costs and enhance the project’s feasibility.  The new TIFIA law provides for an interest rate at half the normal rate for credit assistance supported by the 10% of the annual budget authority reserved for rural projects.

KABATA is taking advantage of the new TIFIA rolling application procedures to move quickly to reserve TIFIA budget authority for its project.  How the TIFIA JPO processes and handles this letter of interest may tell the industry a lot about the USDOT’s administration of the new TIFIA program.

Evan Caplicki co-authored this entry.

U.S. Department of Transportation Launches Historic Expansion of TIFIA Program

On July 27 U.S. Transportation Secretary Ray LaHood announced the availability of over $16 billion in TIFIA credit assistance for critical infrastructure projects across the country as a result of the recently enacted MAP-21.  The notice of funding availability can be found here.  The TIFIA Joint Program Office is conducting a web conference tomorrow, August 1, on its plans for TIFIA implementation under the new law.

MAP-21’s TIFIA amendments provide $1.75 billion in budget authority over two years for the TIFIA credit assistance program and will be the largest transportation infrastructure finance fund in the USDOT’s history.  Each dollar of federal funds (except funds to pay program administrative costs) can provide approximately $10 in TIFIA credit assistance (or approximately $16.1 billion) and can leverage up to $20-$30 billion in transportation infrastructure investment.  As a whole, the federal loan program could support up to $50 billion in Federal, state, local and private sector investment.

To date, the TIFIA program has used $9.2 billion in funding to leverage more than $36.4 billion in capital to help build 27 major transportation projects around the country.  The new funding will build on this impressive record and stimulate the development of necessary highways, bridges, tunnels, passenger rail projects and other transportation projects and provide a significant boost to the American economy.

A variety of transportation projects are eligible for the funding and many qualified, large-scale projects that where previously postponed may be able to progress due to the flexibility provided by the TIFIA program.

Although the TIFIA amendments do not take effect until October 1, the USDOT is acting with urgency to encourage early submissions of letters of interest, which start the process for obtaining TIFIA financing.  The USDOT has adapted its form of letter of interest to the amended eligibility criteria.  However, the notice also requires a preliminary rating opinion on senior and TIFIA debt and a $100,000 fee in order to conduct a robust initial screening of projects before inviting the project sponsor to submit a formal application.  The USDOT intends to retain financial and legal advisors at this early stage to help determine whether the eligibility criteria, especially creditworthiness, are satisfied.

MAP-21 ushers in a paradigm shift in the TIFIA program, from a merit-based project selection and evaluation system to a system of objective eligibility criteria under a rolling application process.  Nevertheless, the USDOT seemingly is unable to complete this shift and still clings to the role of arbiter of what projects deserve TIFIA support and in what amount.  The notice of funding availability requires that the letter of interest include quantitative or qualitative information on the project’s “public benefit” so that the USDOT can “evaluate each Letter of Interest to determine whether it would be in the public interest to provide credit assistance to the proposed project.”  The letter of interest also must contain the rationale for the amount of TIFIA credit assistance requested to “help DOT ensure that it allocates TIFIA’s budget authority effectively.”  Apparently, the USDOT intends to place the burden on the project sponsor to justify assistance greater than 33% of eligible capital costs, even though Congress expressly authorized loans up to 49%.  These provisions in the notice may generate controversy.

Secretary LaHood also announced the creation of the Project Finance Center (“PFC”), which will help state and local government project sponsors analyze financial options for highway, transit, rail, intermodal and other surface transportation projects facing funding challenges.  Through the PFC, the USDOT will have an opportunity to provide technical assistance to state and local sponsors of surface transportation projects seeking financial support and make the development process easier for all parties involved.

The notice of funding availability invites public comments by September 1.  The comments may broadly address any aspects of USDOT’s implementation of the TIFIA amendments in MAP-21.

Barney Allison co-authored this entry.

MAP-21: Treatment of Public-Private Partnerships Under Surface Transportation Reauthorization

The Moving Ahead for Progress in the 21st Century Act (MAP-21) contains meaningful reforms that collectively represent a significant improvement in federal surface transportation law.  For the most part, federal law directly on the subject of public-private partnerships saw little change of significance.  Other federal laws, though not directly addressing PPPs, also affect the viability as a project financing mechanism.  Changes to the TIFIA program and to federal tolling law that will markedly improve project finance via public-private partnerships were addressed in our earlier postings.

Meaningful Reform:

  • Private Sector Participation.  MAP-21 requires the Secretary to develop policies and procedures to (1) promote public understanding of the role of private investment in public transportation projects and (2) better coordinate the public and private sectors with respect to public transportation services.  To that end, the bill further requires the Secretary to identify impediments to the greater use of public-private partnerships and to address them by developing and implementing procedures similar to those used in FHWA's "SEP-15" process.  The SEP-15 process allows the Secretary to waive statutory and regulatory requirements on a case by case basis in order to increase project delivery flexibility and promote public-private partnerships.

To continue reading, click here.

Webinar: MAP-21 - Meaningful Reforms and Practical Implications

Congress recently passed the Moving Ahead for Progress in the 21st Century Act (MAP-21), a measure to reauthorize transportation funding through the end of 2014. MAP-21 contains meaningful reforms that collectively represent a significant improvement in federal surface transportation law. It will have far-reaching implications for the transportation industry and will dictate how large, complex projects can be developed in the coming years.

What does it mean to you?

Join our panel, including key house staff members critical to MAP-21, for a 90-minute discussion on selected aspects of the Act and listen as they address the effects it will have on the transportation industry.

GEOFF YAREMA, Chair of Nossaman's Infrastructure Practice Group, is a nationally recognized leader in infrastructure development and finance and was a member of the National Surface Transportation Infrastructure Financing Commission.

JIM TYMON is the Republican Staff Director of the Highways and Transit Subcommittee of the U.S. House of Representatives Transportation and Infrastructure Committee.

JENNIFER HALL is Counsel to the U.S. House of Representatives Transportation and Infrastructure Committee.

FRED KESSLER represents state DOTs and other transportation agencies in design-build and public-private partnerships project delivery and financing using tolling, TIFIA, PABs and other financing tools.

ROB THORNTON represented transportation agency clients on project delivery issues in MAP-21 and has successfully defended projects with a construction cost of over six billion dollars against environmental challenges.

Attendees will receive insight on:

  • Final compromises reached
  • Expansion and update of the TIFIA program
  • Environmental streamlining
  • Changes in tolling policies
  • Public-private partnerships
  • Congressional role in implementing the legislation

To register for this informative webinar, click here.

MAP 21: Tolling Rights Expand Under Surface Transportation Reauthorization

Congress recently passed the Moving Ahead for Progress in the 21st Century Act (MAP-21) and under prior law, with few exceptions, tolling was prohibited on Interstate highways and many other federal-aid highways.  The bill expands the exceptions, in recognition of the fact that federal fuel tax revenues are stagnant and new revenue sources are imperative to meet the growing funding gap in surface transportation.  This expansion is tempered, however, by the fact that Congress has curtailed the existing toll pilot programs.  Nevertheless, under the new law, tolls will play an increasingly important role in transportation financing.

Government sponsors of large transportation projects will have new toll revenue options at their disposal.  They will need to develop strategies to take advantage of this new array of tolling opportunities, including use of toll concessions, as well as availability payment public-private partnerships that use tolls to reimburse public sponsors for all or a portion of the payments.

To continue reading, click here.

MAP-21 Creates Potential to Accelerate Project Delivery

MAP-21, a measure to reauthorize transportation funding through the end of 2014, is the product of a robust effort by transportation advocates to streamline the lengthy, complex, and cumbersome federal environmental process.  Nossaman played an important role in this debate.  As was widely reported during the Congressional debate, it requires an average of 15 years to obtain approvals to build a major new transportation project.  It is not uncommon for large projects to languish in NEPA (National Environmental Policy Act) purgatory for decades.  The House and Senate versions of MAP-21 sought to reduce materially the time required to deliver major transportation improvements, but without sacrificing the environment.

MAP-21 reflects considerable horse trading by conferees on environmental streamlining.  Whether the ultimate product will achieve the stated legislative objective will depend on the terms of regulations to implement MAP-21 and continued vigilance by the transportation community.

To continue reading, click here.

Surface Transportation Reauthorization Ushers in Significant Changes to TIFIA

On June 29, 2012 Congress passed the Moving Ahead for Progress in the 21st Century Act (MAP-21), a compromise measure to reauthorize transportation funding through the end of 2014.  A bipartisan and bicameral measure, MAP-21 contains meaningful reforms that, although marred by some missed opportunities, collectively represent a significant improvement in federal surface transportation law.

We foresee continued heavy demand for TIFIA credit assistance, particularly given the more attractive features of the reenacted TIFIA program.  We have some concern that the combination of the increase in coverage from 33% to 49%, the significant simplification of eligibility criteria, the removal of FHWA discretionary selection authority, the rolling application process, the availability of master credit agreements to obtain early conditional commitments, and the fairly forgiving project readiness eligibility requirement will result in a race to submit applications prematurely.  Government sponsors of large transportation development projects will need to develop timely, proactive strategies to take advantage of the new TIFIA program.

To continue reading, click here

State DOTs Send Letter to Congress in Opposition of MAP-21 Amendments

Representatives from a coalition of Departments of Transportation (DOTs) across the United States have joined to send a letter to Speaker of the House of Representatives John Boehner  to oppose inclusion into the House's surface transportation reauthorization bill two amendments, introduced by Senator Bingaman, to the recently passed S. 1813, entitled Moving Ahead for Progress in the 21st Century (MAP-21). The DOTs that signed the letter include Arizona, Pennsylvania, Florida, North Carolina, Indiana, Texas, Kansas, Virginia, and Ohio.
 
The DOTs say the two provisions of note (specifically, section 4039 and section 104(c)(1)(C) of Title 23USC as amended by section 1105)  would remove or discourage important optional financing tools that states can use to build, maintain, and operate highway infrastructure. The letter, which can be read in full here, asks that the House not include either of these provisions in HR 7, the American Energy and Infrastructure Jobs Act, and requests that in conference, the House stand firm against the Senate provisions and not include either in a conference report. 
 
The letter suggests that the coalition may take other joint positions on key provisions of the bill and in the process may be expected to grow its base of support.

Big Changes Proposed for TIFIA

Moving Ahead for Progress in the 21st Century (MAP-21), the draft reauthorization bill unanimously voted out of the Senate Environment and Public Works Committee, contains major improvements to the TIFIA program that many, including those of us at Nossaman, have been advocating.  These changes, if enacted, will greatly expand availability and eliminate much of the uncertainty over whether a project will be selected.

  • The bill eliminates virtually ALL of the selection criteria, converting availability from a discretionary competitive selection process to a simple objective determination of project eligibility.
  • It adopts a rolling basis for applications and availability.  No more waiting for annual notices of funding availability; it is up to the project sponsor to decide when to apply.
  • The bill gives applicants the right to pay the subsidy from other sources, included federal grant funds, if budget authority runs out.
  • Alternatively, if budget authority runs out, the bill allows an applicant to enter into a master credit agreement to obtain budget authority in a later year when available.
  • The bill increases the size of the TIFIA credit assistance from a maximum of 33 percent to a maximum of 49 percent of eligible project costs.
  • The Senate EPW Committee recommends an annual TIFIA budget authority of $1 billion.

Other features of the bill's amendments include:

  • Beefed up credit standards, including "an investment grade rating from at least two rating agencies on debt senior to the Federal credit instrument; and a rating from at least 2 rating agencies on the Federal credit instrument."   For small projects (up to $75 million, rural projects, and ITS), only one rating agency rating is required.
  • As a requirement for project eligibility, the applicant must first submit a letter of interest (LOI), followed by an application.  Presumably, the LOI and application requirements will get a lot simpler and quicker with fewer eligibility criteria.
  • The bankruptcy springing lien has an exception for senior debt that is for an agency's program and is secured by tax revenues or system revenues.
  • 50 percent of unused annual budget authority (if any) can be carried forward; the balance is returned to the states via federal share.
  • Administrative fees for the program are set at 1 percent of the annual budget authority.  At $1 billion of annual budget authority, annual administrative fees will be $10 million, a large increase from the $2.2 million under existing law.

There are a few issues that cause us concern.

  • Project readiness is not a prerequisite for TIFIA eligibility.  Such a requirement seems especially needed given the new first-come, first-served approach to budget authority allocation.
  • Improved and expedited procedures are needed to overcome the inordinate processing delays that characterize the TIFIA program.  We are quite concerned that applications, credit processing and loan documentation will get bogged down, and bureaucracy rather than budget authority will be the new constraint on TIFIA expansion.
  • The exponential increase in TIFIA demand that will occur if this bill comes to fruition has real potential to overwhelm the TIFIA JPO, particularly because applicants can pay in subsidies on top of the $1 billion budget authority.  The bill’s increase in the annual administrative budget to $10 million may not be enough. Consideration should be given to increasing the administrative budget so that the TIFIA JPO can staff up to handle in a timely manner the growth in demand.
  • There is no provision calling on the TIFIA JPO to process LOIs, applications, term sheets and loan documentation during the period it will be rolling out regulations for carrying out the amended program.  It would be quite detrimental to the states if things grind to a halt while USDOT goes through a long procedure to adopt regulations.

There is reason to believe that the House reauthorization bill will contain comparable improvements to this vital federal credit assistance program.